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CHAPTER V
ACCELERATION OF
FINANCIAL MARKET
DEEPENING
Bank Indonesia issued the Blueprint for Money Market
Development (BPPU) 2025 in an effort to accelerate the creation
of a liquid, efficient and deep financial market. The aims were to
support monetary and financial system stability and to accelerate
national economic development. BPPU 2025 is being implemented
by encouraging the digitalization and strengthening of financial
market infrastructure, strengthening the effectiveness of monetary
policy and developing sources of economic financing and risk
management. Implementation of BPPU 2025 is supported by
strengthening synergies whether within Bank Indonesia itself or
between Bank Indonesia and the relevant authorities and players in
the financial industry.
The development and deepening of financial on transactions between market participants. A
markets have shown positive developments. As high level of credit risk hinders the development
part of structural reform efforts to achieve and and deepening of a broader financial market,
maintain stability of the Rupiah, Bank Indonesia has underscoring the need to strengthen financial market
made efforts to deepen financial markets together infrastructure.
with the other relevant authorities. Good progress
has been made on various instruments in the money Bank Indonesia formulated the Blueprint for
and foreign exchange markets, even though progress Money Market Development (BPPU) 2025 as a
has been somewhat restrained during the Covid-19 comprehensive policy response to accelerate
pandemic. The average volume of transactions on the money market reform through strengthening
Rupiah interbank money market (PUAB) increased infrastructure and digitalization. This is being done
from IDR11.7 trillion per day in 2016 to IDR19.0 to create a liquid, efficient and deep financial market
trillion per day in 2019, before declining to IDR9.6 in order to support monetary stability, financial
trillion per day in 2020, as a result of the pandemic. system stability and a conducive climate for financing
The volume of foreign currency transactions was national development. Three main BPPU initiatives
relatively stable at around USD5.5 billion per day in (see following paragraph) were adopted to achieve
2018 and 2019, and slipped to some USD4.7 billion a modern, advanced financial market that complies
per day in 2020, mainly supported by an increase end-to-end with international standards. Coverage
in domestic non-deliverable forward (DNDF) includes the instruments themselves; the basis of
transactions. This decline in the volume of foreign the market players; a credible benchmark rate; and
exchange transactions is commensurate with declines various forms of infrastructure (market infrastructure,
in the components of GDP that are transacted in regulatory framework, coordination and education).
foreign currency, particularly the exports-imports The three main BPPU 2025 initiatives encourage the
component of goods and services; these are projected implementation of digitalization and infrastructure
to contract by around 15% in 2020. Deepening of in response to the ongoing digital transformation
the financial markets was also evidenced by positive along with the development of new manufacturing
developments concerning the number of issuances of technologies (also known as ‘Industry 4.0’). This is
short-term securities in 2020, particularly corporate in line with Bank Indonesia's efforts to encourage
32 digitalization of the payment system.
securities (SBK) and certificates of deposit.
The program for financial market development There are three main BPPU 2025 initiatives and
and deepening should be continued to support the goal is to create an integrated development
economic recovery. A liquid, efficient and deep strategy to achieve money market reform in
financial market is the ultimate goal of financial Indonesia. In the first BPPU initiative in 2025,
market development. These efforts will help money market reform policies will be focused on
to support stability of the rupiah; to ensure the developing efficient, safe, reliable and international
availability of various instruments for liquidity and standard infrastructure, as just mentioned. This
risk management; and to facilitate the creation will be achieved through the development of
of alternative sources of financing for national various pieces of largely pre-existing, electronic
development. Despite progress to date in developing infrastructure, namely: an Electronic Trading Platform
Indonesian financial markets, continued efforts face (ETP); a so-called ‘matching system’, which improves
challenges, especially concerning how to reduce the current bilateral trading system; a Central
the level of credit risk among market participants Counterparty (CPP) ; a trade repository; the BI Real
(counterparty risk). For example, credit risk among Time Gross Settlement system (RTGS); and the BI
the market players is susceptible to changes in global Securities Settlement System (SSS). These constitute
uncertainty; the higher global uncertainty, the higher the basis for the second and third initiatives in the
the level of credit risk, or the greater the pressure development of the financial market (Figure 5.1).
The second initiative envisages reforms to develop
32 In 2020, there were SBK issuances by one corporation that reached IDR566 billion, an the money market and foreign exchange markets
increase from IDR220 billion in 2019. The issuance of certificates of deposit in 2020 to ensure adequate liquidity, depth and efficiency,
amounted to IDR9.3 trillion, down from IDR20.7 trillion in 2019.
96 CHAPTER V — ECONOMIC REPORT ON INDONESIA 2020
Figure 5.1. Strategic Framework for Development of the Money Market
Five Visions of BPPU 2025
1. To build a modern and advanced money market for national economic financing, effectiveness of monetary policy transmission, and
financial system stability.
2. To develop products, pricing, and market participants for money market which are diverse, liquid, efficient, transparent and full of
integrity.
3. To strengthen reliable, efficient, safe, and integrated financial market infrastructures.
4. To develop granular, realtime, and secure data and digitalization.
5. To develop an agile, industry-friendly, and innovative regulatory framework compliant with the international standard.
Creation of diverse, liquid, efficient, and transparent money market with Availability of national economy financing sources
integrity, supported by FMIs that conforms to international standards
PROMOTE DIGITALIZATION & STRENGTHEN DEVELOP ECONOMIC
STRENGTHENING OF EFFECTIVENESS OF MONETARY FINANCING SOURCES & RISK
FINANCIAL MARKET POLICY TRANSMISSION MANAGEMENT
INFRASTRUCTURES (FMI)
FINANCIAL Fund Provider & Benchmark & Market Regulatory Coordination &
MARKET Instrument User Intermediaries Standardization Infrastruture Framework Education
ECOSYSTEM
Source: Bank Indonesia
thereby strengthening monetary policy transmission. development is the main focus and a strategic
As for the third initiative, it is directed at encouraging component of broader financial market development
the development of sources of economic financing (Figure 5.2). Financial market infrastructure that
and better risk management. These policies is efficient, secure, reliable and at international
complement another Bank Indonesia initiative, standards will improve the efficiency of money
namely the Indonesia Payment System Blueprint market operations by, for instance, more varied and
(BPSI) 2025, which aims to accelerate digital finance liquid products with broader participation. Looking at
and the economy. broader considerations, these initiatives will support
digitalization and financial inclusion, including MSMEs;
These three initiatives are interconnected, in strengthen the effectiveness of monetary policy
support of BPPU's ultimate goal of creating a transmission; and increase financing. All of these will
modern and advanced money market by 2025. help Indonesia become a high-income country by
As discussed, financial market infrastructure 2045.
Figure 5.2. Interlink of BPPU 2025 Initiatives
Initiative 2
Effectiveness of Monetary
Policy Transmission Price stability:
Efficient pricing Inflation
Initiative 1 Varied and liquid products
Broader participants Financial System
Financial Market Infrastructure* Stability
Hard Infrastucture Liquid and Efficient Support National
Soft Infrastructure Financial Market Economy toward a
Economic Developed Indonesia
*) Money Market, Forex Market Growth
& Sharia Market Initiative 3
Economic Financing Sources Inclusive: Roles of
Asset Securitization MSMEs
Varied and liquid hedging
Retail-based participants
Source: Bank Indonesia
CHAPTER V — ECONOMIC REPORT ON INDONESIA 2020 97
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